Services sector grows for second straight month, but rate falls in Nov: PMI

Services, the biggest sector of India’s economy, saw a dip in growth in November, but it was the second straight month to have witnessed growth after 7 months of continuous decline, showed the widely-tracked IHS Purchasing Managers’ Index (PMI). While domestic demand remains strong, that from overseas markets declined.

The index declined to 53.7 in November from 54.1 in October. In the PMI lexicon, any reading above 50 is expansion and any print below that is contraction.

The commentary associated with PMI said the latest reading was still indicative of a solid pace of expansion.

“Companies that signalled output growth commented on better demand conditions and a relaxation of Covid-19 restrictions,” it said.

Sub-sector data highlighted transport & storage as the best performing category in November, with rates of growth for output and sales surpassing those seen in consumer services and finance & insurance. Information & communication and real estate & business services saw reductions in new orders and activity.

Underlying data suggested that the upturn in total new work was driven by the domestic market, with new export orders decreasing sharply again in November. The latest fall in international sales, the ninth in consecutive months, was attributed to subdued global demand and travel restrictions, the commentary said.

In fact, official trade data also showed that merchandise exports declined in November by over 9 per cent, sharper than 5 per cent in October.

Service providers suggested that disruptions caused by the Covid-19 pandemic exerted upward pressure on operating capacities during November, with outstanding business increasing further. Moreover, the pace of backlog accumulation was marked and faster than in October.

Together with manufacturing activities, Indian private sector activity rose for the third straight month in November, but the pace of growth softened from October’s near 9-year high. The Composite PMI Output Index was down from 58.0 to 56.3, a reading that was still consistent with a marked rate of expansion. The rates of increase eased at both manufacturers and service providers.

In turn, services firms hired additional workers in November, ending 8 months of job cuts. That said, the rate of employment growth was marginal overall as some companies reported having sufficient staff to cope with the current workloads.

Both input and selling prices accelerated in November, a fact that came to light a day before the monetary policy committee of the Reserve Bank of India comes out with its review.

“Low interest rates aimed at mitigating the negative impacts of Covid-19 on the economy and the latest rise in services employment are supportive factors for domestic demand. However, a pick-up in inflationary pressures could threaten the recovery,” said Pollyanna De Lima, economics associate director at IHS Markit.

Looking ahead, services firms are confident of a rise in business activity in the coming 12 months. The overall degree

of optimism improved to a 9-month high, while positive sentiment was boosted by hopes that a vaccine for Covid-19 will be rolled out.

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